Ministry of Commerce & Industry
Department for Promotion of Industry and Internal Trade  notifies establishment of Credit Guarantee Scheme for Startups 
Scheme to act as a key enabler and risk mitigation measure for lending institutions, enabling collateral free funding to startups
The Department for Promotion of Industry and Internal Trade , Ministry of Commerce and Industry has notified the establishment of the Credit Guarantee Scheme for Startups  for providing credit guarantees to loans extended by Scheduled Commercial Banks, Non-Banking Financial Companies and Securities and Exchange Board of India  registered Alternative Investment Funds .
CGSS is aimed at providing credit guarantee up to a specified limit against loans extended by Member Institutions  to finance eligible borrowers viz. Startups as defined in the Gazette Notification issued by DPIIT and amended from time to time. The credit guarantee cover under the Scheme would be transaction based and umbrella based. The exposure to individual cases would be capped at Rs. 10 crore per case or the actual outstanding credit amount, whichever is less.
In respect of transaction-based guarantee cover, the guarantee cover is obtained by the MIs on single eligible borrower basis. Transaction based guarantees will promote lending by Banks/ NBFCs to eligible startups. The extent of transaction-based cover will be 80% of the amount in default if the original loan sanction amount is up to Rs. 3 crore, 75% of the amount in default if the original loan sanction amount is above Rs. 3 crore, and up to Rs. 5 crore, and 65% of the amount in default if the original loan sanction amount is above Rs. 5 crore .
The umbrella-based guarantee cover will provide guarantee to Venture Debt Funds  registered under AIF regulations of SEBI , in view of the nature of funds raised by them and debt funding provided by them.The extent of umbrella-based cover will be the actual losses or up to a maximum of 5% of Pooled Investment on which cover is being taken from the fund in eligible startups, whichever is lower, subject to a maximum of Rs.10 crore per borrower.
Along with institutional mechanisms for operationalizing the Scheme, DPIIT will be constituting a Management Committee  and a Risk Evaluation Committee  for reviewing, supervising and operational oversight of the Scheme. The National Credit Guarantee Trustee Company Limited  will be operating the Scheme.
Prime Minister, Shri Narendra Modi launched Startup India Action Plan on 16th January 2016 to lay the foundation of Government support, schemes and incentives envisaged to create a vibrant startup ecosystem in the country. The Action Plan envisaged a Credit Guarantee Scheme to catalyze entrepreneurship through credit to innovators and encourage banks and other member institutions in the ecosystem for providing venture debt to startups.
A dedicated credit guarantee for DPIIT recognised startupswill address the issue of unavailability of collateral free loan and enable flow of financial assistance to innovative startups through their journey to becoming full-fledged business entities. The Scheme further reiterates Government’s focus towards promoting innovation and fostering entrepreneurship for making Indian startup ecosystem the best in the world.
With the objective of mobilising domestic capital for Indian startups, CGSS will complement the existing Schemes under Startup India initiative viz. Fund of Funds for Startups and Startup India Seed Fund Scheme.
The framework of CGSS has been prepared in extensive consultations with the stakeholdersover the years with line ministries, banks, NBFCs, venture debt funds, academia and experts from startup ecosystem. The Scheme will act as a key enabler and risk mitigation measure for the lending institutionsenabling collateral free funding to startups.